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You Can Drill All You Want, Oil Prices Are Still Headed Higher

Today I want to focus again on oil prices. It seems that some TV pundits have never heard (with apologies to Alexander Pope) that a little knowledge is a dangerous thing.

Some people on Wall Street believe that by scaring the individual investor they stand to make a greater profit for themselves.

Over the summer, there was a report issued by Credit Suisse that said that oil could hit $50 a barrel. We’ve also seen predictions on CNBC saying $40 a barrel. Others think that oil prices could fall even go further.

What I am telling you now is that these views do not reflect the actual market or the new reality we find ourselves in today.

A lot of this sentiment stems from the idea that we have now increased our supplies here in the United States. Some political candidates even said that they guaranteed “$2.50” per gallon gasoline if they were elected.

“Drill, baby, drill” has become something of a national catchphrase.

The problem is that prices are not just reflective of new supplies, either too much or too little. By focusing only on how much is there, these analysts provide a fundamentally distorted view of the oil market.

Yes, the rise of new sources has altered the picture. But so has the rise in demand globally and at a rate much faster than anticipated.

In fact, the impact of unconventional oil (like our huge sources of shale oil) is now projected to be less than expected, even with additional volume coming on line.

And one report issued last week reflects that fundamental view and explains why oil prices are set to rise, not fall in this age of expanded unconventional oil and gas.